Key takeaways
Adding 20 % tax multiplies by 1.20. Removing it divides by 1.20, not multiplies by 0.80. The asymmetry trips up more people than any other percentage task.
- Gross = net × (1 + rate).
- Net = gross ÷ (1 + rate), never gross × (1 − rate).
- The tax amount is gross minus net.
Adding tax
A service costs €200 before 20 % VAT. The gross price is €200 × 1.20 = €240.
Removing tax
A receipt shows €240 including 20 % VAT. The net price is €240 ÷ 1.20 = €200, and the VAT is €40. Multiplying by 0.80 would give €192, which is wrong by €8.
Why the shortcut fails
The 20 % was added to the net price, so it is 20 % of €200, not 20 % of €240. Dividing undoes the multiplication exactly.
Discounts and tax together
Apply the discount to the net price first, then add tax. Tax is charged on what you actually pay.
Related questions
- How do I remove 20 % VAT from a price?
- Is sales tax added before or after a discount?
Sources
Reviewed by Dana Whitfield on September 15, 2026
